danielashby

Beaufort Analysis 282 - 'The Italian Job'

Months of political deadlock in Italy ended on Friday with Giuseppe Conte being sworn in as the new prime minister. This marked a significant reversal from earlier in the week, when President Sergio Mattarella vetoed Conte's pick for finance minister, sending both Italian and European markets into a tailspin. While the media was concerned with the potential apocalypse that faced Europe, the two anti-establishment parties agreed on a list of ministers drawn up from both the Five Star Movement and Right-Wing League. It would appear that the recent market movements in European markets reflected the political uncertainty within Italy, rather than Italy defaulting or leaving the EU.

The week had stored all its headlines for Friday, as along with the news from Italy, we had other issues in Europe with Visa suffering a service disruption which stopped card transactions being processed. £1 in every £3 spent in the UK is spent on a Visa card; systems were down for around 6 hours during the busiest period of the week which wreaked havoc for consumers and businesses alike. Malicious activity was quickly ruled out and Visa admitted a hardware failure was to blame.

The US implemented the much-threatened steel and aluminium tariffs on Friday, with national security concerns to blame. This has sparked outrage and potential retaliatory levies from the affected allies of the US, including the European Union, Canada and Mexico.

Friday also gave good tidings for the US with the lowest unemployment rate in 18 years. This is likely to pave the way for another interest rate rise by the Federal Reserve later this month.

by danielashby

Beaufort Analysis No. 281 - Stepping stones

Updated UK inflation data for April was disappointing, following the timing of Easter, which impacted air fares and consequently, inflation. Whilst inflation fell to 2.4%, soft drink prices did increase after introduction of the new sugar tax. Sterling also depreciated after this inflation news. Despite this fall in inflation, UK retail sales increased in April after a poor month for March, suggesting the economy is not as unhealthy as it may seem given the data for the first quarter. Retail sales for April rose by 1.6% on those for March, but consumer confidence remains low, with a key measure reported to have decreased in April.

As the news of Brexit has been more subdued recently, Mark Carney, the Governor of the Bank of England, has been weighing in with a warning that a disruptive Brexit could have big implications for the economies of both the UK and European Union as inflation could crawl higher. Carney has stated that Brexit has already cost the UK 2% in economic growth, with household incomes £900 a year worse off than had the outcome been to remain in the EU.

President Donald Trump has cancelled his summit with Kim Jong Un, North Korea's leader, on the 12^th June in Singapore, following the North's statement last week. The North has responded explaining they are open to talk to Donald and the US as anytime. Whilst this is disappointing for the US, the Korean peninsula and the planet as a whole, it cannot be seen to be unexpected given the volatility of their relationship. North Korean officials are expected to travel to the US this week. Following this news, Asian equities, in particular South Korean equities, suffered a small loss with the major Asia indices reporting decreases.

by danielashby

Beaufort Analysis No. 280 - Markets rise despite slowing economy

Mentioned in last week's Beaufort Analysis, oil remains in the headlines with the price of Brent crude reaching $80 a barrel last Thursday. This is due to the continuing concerns that Iranian exports could fall because of renewed US sanctions, reducing supply in an already tightening market. Donald Trump's decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC's third-largest producer, has boosted oil prices. This is in addition to the already strong global demand and plummeting Venezuelan production; the latter potentially worsened by the alleged rigged re-election of President Nicolas Maduro which could lead to further sanctions.

The number of low-paid workers in the UK has hit its lowest level since 1982. Thinktank Resolution Foundation said the share of employees earning less than £8.50 a hour hadfallen to 18%due to the introduction of a higher minimum wage. The Office for National Statistics (ONS) announced that wages rose at an annual rate of 2.9% in the three months to March, faster than inflation for the first time in more than a year. Over the same three-month period, the inflation rate was 2.7%. The ONS also confirmed that the employment rate - the proportion of people aged 16 to 64 years in work - was 75.6%; the highest since 1971.

Nevertheless, UK productivity fell during the first three months of 2018, contrary to the strong second half of last year, with manufacturing output slowing, as both domestic and export orders declined. This follows the previous week's announcement that the construction sector had contracted at its sharpest rate for more than five years, as poor weather hit the building industry. This further addition to slowing economic growth providing the backdrop to the Bank of England's delay in raising interest rates.

Finally, despite the slowing economy, UK markets have reached all-time highs as measured by both the FTSE 100 and FTSE 250 Indices, surpassing their January levels; the main index hitting a new closing high last Thursday of 7787 and the 250, going one better, by closing above 21,000 for the first time. As we write, both indices are extending their gains further.

by danielashby

Retiring on time: Five tips for giving up work on your own terms

Do you have a dream retirement age in mind? Most people do.

Unfortunately, many people believe that, no matter how hard they wish to retire on time, they will be beholden to their employer long past the age they'd like to be putting their feet up.

The situation

According to research from Scottish Widows, more than 10 million UK adults estimate that they will need to continue working until they are no longer physically able to do so. Furthermore, three million people say that they have no choice but to work until the end of their life.

Less than a quarter (24%) of people expect that they will have left working life behind completely by the time they reach 65, with the least optimistic outlook held by younger generations.

51% of people expect to remain employed on at least a part-time basis; and just 18% say that this will be down to preference, rather than necessity.

Your options

Retiring at a reasonable age shouldn't be impossible, but it will mean planning ahead and might mean making some changes to your current financial habits.

1. Know your position

Look at what you are currently doing to prepare for retirement and use a calculator (such as this one) to work out:

• How much you are likely to have in retirement, without making any changes
• What age you could retire
• How much you will need (lump sums and income) to retire on your own terms
• What the shortfall is

You can then use this information to determine what needs to change between now and the age you want to retire, to ensure that you have enough money to support your desired lifestyle.

2. Save more

Putting more money aside now, will give you more income when you choose to access it. It sounds simple enough, doesn't it? But, according to the research, 23% of 25-54-year olds are concerned that they are not putting enough away for the future. Meanwhile, 39% fear running out of money completely after they give up working.

3. Take advantage of the helping hands offered

If you are paying into a workplace pension, you already have a great foundation for sensible saving habits. However, for those who have joined a pension through the introduction of automatic enrolment, the minimum contributions made by you and your employer are unlikely to be enough to provide an adequate retirement income.

Currently, your employer must contribute the equivalent of 2% of your pensionable earnings (the income you receive between £6,032 and £46,350 each year), whilst a further 3% is taken from your salary before you receive it. Unfortunately, current expert guidelines state that the average worker will need to put a total 12% of their annual earnings to one side, meaning that many people currently contribute less than half of what they will need to live the retirement lifestyle they aspire to.

4. Repay debts

If you can retire without debt, you will be able to do more with your income. Reducing your living costs as you enter retirement will make a big difference to your ongoing budget. With a smaller portion of your retirement income being lost to repaying debts, you will have more available to enjoy the retirement lifestyle you want.

How you achieve this will differ, depending on your circumstances. But it could include moving into a smaller property, cutting back on non-essential spending and even smaller changes, such as shopping around for better deals from utility providers.

5. Talk to a professional

Engaging with a financial adviser or planner will help you to get on the right track to retiring on your terms; your income and age of choosing.

Research has shown that, those who seek the help of advisers and planners can save up to £98 per month extra toward their retirement income, which could give you an additional £3,654 per year to live on when you stop working.

Planning for retirement can be a daunting task. But, by talking to the right person, you can ensure that you are able to stop working, when it suits you, and with the retirement income you want. For more information or to get started, why not get in touch with us?

by danielashby

Further interest rate rises predicted: How to stay ahead

We're almost half way through 2018, and it's likely that you've already thought ahead about some things. Maybe you're planning a trip abroad during the summer holidays, or you're a really eager Halloween costume aficionado (and we won't mention those who are already thinking about tinsel and stockings!).

But have you thought about interest base rate rises?

They're not as exciting as holidays and parties, granted, but it is important to act now if you are going to protect your finances from the impact of the predicted increases over the next 12 months.

What's likely to happen?

According to experts, the Bank of England (BoE) is likely to raise the base rate twice in 2018, with another two increases expected to follow next year (Source: EY ITEM Club. Naturally, all financial predictions should be treated with an amount of scepticism, however, it seems certain that when rate rises do come, they will be gradual in nature.

Nonetheless, borrowers should not underestimate the impact on their personal finances, nor should savers overestimate the benefits of them.

If the predictions made come to fruition, the base rate may increase by as little as 0.25% each time, but that will still be a minimum increase of 1% over the next 24 months. Whilst it might not sound like much (especially if you remember the late 80s and early 90s), it is likely to impact you.

What will an increase mean for you?

There are two sides to the potential effects of base rate rises; the negative impact on borrowers, and the benefits it can bring for savers.

For borrowers:

Last year, it was estimated that 3.9 million homeowners had variable, or tracker mortgages (Source: Council of Mortgage Lenders). That means that just over two fifths of homeowners face a rise in monthly repayments every time the base rate is increased.

Variable and tracker rates are, by definition, not fixed. Therefore, when the BoE increases interest rates, this rise is passed on by the mortgage lender to those people with these types of mortgages, pushing up their monthly payments.

If you have a tracker or variable mortgage, the first thing is to understand how much your mortgage payment will increase by if interest rates rise, then ask if you can afford it. If not, it is time to start looking at your options. These include:

• Moving to a fixed rate mortgage
• Cutting back on other expenses to free up the money to cover the increased payments
• Use the time you have to head off any rises and start putting a financial buffer in place which can absorb the extra costs for a while

Fixed rates are usually offered on a fixed-term basis, so it is likely that you will need to shop around every two-to-five years to find a product that suits your needs.

For savers:

Increases in interest rates are mostly good news for anyone building their savings. Whether it's to be used as a deposit on your next home, or you are concentrating on making sure that you have enough to live on in retirement, higher interest rates should give you better returns on your savings.

However, it is unlikely that providers will be rushing to pass any rate rises onto their customers, so where you choose to keep your money now, will matter in the long run. That means that you will need to shop around if you are to see the best possible growth in your savings.

It is also important to keep inflation rates in mind. Even though they may show signs of having peaked last year at a post-Brexit-vote high, it is still tough for savers to find a real return on their money and this is unlikely to change anytime soon.

Our three top tips for finding the best saving account are:

1. Shop around; using more than one comparison tool
2. Consider differ types of account; could locking money away in fixed-growth options be better for you?
3. Do your research into how providers reacted to the previous rate rise; if they were reluctant to pass the increase onto savers, they are unlikely to act differently during future rises

Where to go from here

Whether you're currently borrowing or saving (or, most likely, a mix of both) you will undoubtedly be looking for ways to stay ahead of the potential base rate rises over the next 24 months. The best way to do this is to engage with a financial planner or adviser to develop a strategy and gain insights which will enable your money to work for you and allow you to meet your financial goals.

For more information, or to get started, feel free to get in touch.

by danielashby

Gender pay gap does not need to continue into retirement

Historically, men have received more money annually from the State Pension than women. In a recent Which? survey it was shown that over 20 years, women would receive £29,000 less on average than men; however there are a few factors at play that mean the annual discrepancy may be largely offset. These include women receiving their state pension earlier than men at 60 and not 65. With the state pension age now being very close to equalised, how will this effect women going forward - will they continue to take a reduced annual benefit than men?

How the State Pension is calculated

To be eligible to receive any State Pension, you must have at least 10 years of National Insurance contributions on your record. How much you receive each week will depend on how many qualifying years you have in total, and to receive the Full State Pension, you will need a minimum of 35.

Qualifying years can be accrued in three ways:

• By paying National insurance through an employer or self-assessment
• By receiving National Insurance Credits, which are awarded by claiming some State Benefits
• By making voluntary payments

Where is the gender gap?

The main reasons for the gap in pension benefits are: women are more likely to work less hours, women have historically earned less than man, have taken time off work or leave employment altogether for periods of time during their lives to take care of children and or elderly and infirm relatives.

The new flat rate of state pension benefit that was introduced in April 2016 (currently £164.35 per week) is designed to rectify the previously mentioned issues that currently negatively affect women. In the past, a part of the state pension was based on earning and the more you earned the more you would receive from the state in retirement. This has been replaced and you are now awarded a flat credit for each year you earn more than £6,032 per annum no matter how much you actually earn in any one year.

Childcare and National Insurance credits

Parents who receive Child Benefit and are caring for a child under the age of 12 receive National Insurance credits automatically. If a parent is not entitled to Child Benefit they should still apply and ask for no payments as this will activate the automatic credit and count towards the state pension.

Grandparents and other family members aged over 16 but under state pension age that provide care for a child aged under 12 may also be able to get Specified Adult National Insurance credits. These are not credited automatically and need to be applied for (using form CF411A).

State pension credits for carers

If you receive Carer's Allowance, you'll automatically receive credits on your National Insurance record and therefore credit for your state pension.

Understanding your State Pension should be seen as part of the wider retirement planning process. So, to make sure that you have enough retirement income to achieve your goals, you can:

• Calculate how much you will get:

Using a State Pension forecast calculator, you can see how much you will have when you stop working and need to access your pension.

Knowing how much you will have if you don't make any changes to your current situation will help you to identify any shortfall.

• Fill in any gaps in your record:

You can view your National Insurance record and make any voluntary contributions by clicking here.

• Evaluate your other pensions:

Knowing what you can expect to get in retirement income from your workplace or personal pensions will give you a better idea of the overall income you can expect to receive when you stop working.

• Seek financial advice:

Research has shown that those who engage with a financial adviser or planner could put an additional £98 toward their pension each month. This equates to an extra £3,654 in annual retirement income for later life.

Talking to a financial planner will also enable you to make better financial decisions and create a plan which will see you meeting your long-term retirement goals by making adjustments and changes in the short-term.

To get started, please feel free to contact us.

by danielashby

Beaufort Analysis 279 - Drilling for Oil

Last week the Monetary Policy Committee (MPC) of the Bank of England voted to keep the base rate at 0.5%. This is due to weaker economic data for the UK, and February's growth forecast of 1.8%, which was subsequently downgraded to 1.4%. Mark Carney is increasingly referred to as the unreliable boyfriend, not being able to keep his promises of rate rises, and has attributed the poor weather earlier in the year for this weak economic data. However, the MPC remain positive that rates will continue to rise to 1.25% by the middle of 2021. Sterling fell against the dollar after the news there would be no rate rise this month, only weeks after its high following the Brexit vote in April.

After Trump announced the US would be leaving the Iran Nuclear Deal, the price of oil jumped to over $78 a barrel, a figure not seen since 2014. In 2015, an agreement was put in place that the sanctions placed on Iran for oil production would be removed, if they halted their nuclear programme. The price of Brent Crude was pushed up as the markets anticipated how the reintroduction of sanctions would impact the 2.5m barrels a day that Iran export. The S&P 500 also experienced an increase of 2.4%, its largest weekly increase since March, with most of the return coming from the energy sector performing well as the supply of oil constricts without Iran's exports.

But these increased returns are not limited to the US; both the UK and Europe have also seen buoyed performance because of Brent hitting its 3-year high. Forecasters are expecting to see $90 a barrel by the end of next year, with optimists even predicting $100 a barrel. Whilst the increase in cost per barrel can be beneficial for equity returns as oil companies increase their turnover, higher oil prices can lead to inflation so in turn, tighter monetary policy changes.

by danielashby